Price cuts evident, maintain Neutral
Drop TP by 14% on pricing pressure. We drop our FY17-20 EPS estimates by c11% as we see an 8% y-o-y drop in USD-revenue/TEU in FY17/18 (assumed no growth previously), post 5M17/18 results and assume no recovery until FY19/20. We believe ALCN will seek to maintain a low price environment over the medium-term to steer utilisation rates (57% as of 5M17/18). The stock trades at a steep discount on a 2018e EV/EBITDA of 9.1x vs. peers (10.1x), despite generating EBITDA growth (8.2% 2018-20e CAGR) higher than peers (6.5%). This is reasoned by market concerns over competition risks and, although there are no concrete developments as of yet, the company plans to deploy cash (EGP3.4bn as of 5M17/18, 14% of market cap) into real estate, which we see as margin dilutive.
Improving trade outlook in Egypt. ALCN’s volumes recovered in Sept-Nov (c6% y-o-y) following sluggish Jul-Aug throughput (-8% y-o-y). We maintain our 5% y-o-y volume growth assumption for FY17/18 (in line with our GDP growth estimate) on the basis that improved FCY availability, an appreciating EGP against the USD (7% in FY18/19 to EGP16.3), removed limits on FCY deposits and withdrawals by the CBE for imports of non-essential goods on 28 November, should steer volume. This should leave ALCN’s utilisation rate at 72% in three years’ time.
Unforeseen rebound in medium-term prices. ALCN’s USD-revenue/TEU dropped by 12% y-o-y to USD191/TEU in 5M17/18, mainly due to its adoption of a c9% price drop on 9 services in August 2017. At constant prices until end-FY17/18 would result in a c8% y-o-y drop which we maintain until FY18/19e (assuming -12% y-o-y in FY17/18e drops our TP on par with the market price). Onwards, we reduce our growth rate assumption to 3% p.a. from 5% p.a., on the assumption that the outlook for upward price adjustment is clouded and that ALCN’s returns are already 44% higher than regional peers, based on our research, as of 5M17/18.
Competition risks. With large investments planned towards ports in Egypt (USD1.1bn, acc. to MEED Projects), there could be a volume shift from Alexandria port towards Damietta port (due in 2021 which we expect will double capacity) given proximity. We see the planned 1.1mn share issuance (at EGP150.65/share) for ALCN to comply with the EGX’s 5% minimum free float as valuation-neutral.
Alexandria Container and Cargo Handling Company SAE. Alexandria Container and Cargo Handling Company SAE is an Egypt-based public shareholding company engaged in the marine port services sector. The Company specializes in container and cargo handling in Egyptian ports. The Company offers a range of maritime services, including stevedoring and storage, security, tariff of both domestic and foreign trade, and transshipment container handling in the East Mediterranean. The Company operates the following terminals, namely Alexandria container terminal at the port of Alexandria and ElDekheila terminal at the port of Dekheila. The Company's terminals comprise of import and export yards, hazardous yard, operations building, security building, workshops, storage areas, customs areas and fuel stations.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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